Takeaways

• ESG bond issuance in Southeast Asia fell 75% in Q2 2025, bucking global and regional growth trends.
• Green bonds lost ground to sustainability bonds, which gained traction as issuers balanced environmental and social goals.
• Analysts expect issuance to recover later in 2025 as market conditions stabilize and interest rate cuts improve funding costs.

South-east Asia’s environmental, social, and governance (ESG) bond market suffered a sharp setback in the second quarter of 2025, extending a year-on-year decline for the second consecutive quarter. Proceeds from ESG bonds dropped 74.8 per cent to US$1.6 billion in the three months to June, down from US$6.2 billion a year earlier, according to data from LSEG.

The steep fall comes in contrast to global trends. Worldwide, ESG bond proceeds rose 18.4 per cent to US$221.6 billion, while Asia-Pacific excluding Japan saw a surge of 63 per cent to US$65 billion. Analysts say regional uncertainty, particularly stemming from US tariffs and resulting market volatility, discouraged Southeast Asian issuers from moving ahead with large transactions.

Read More: Sustainable Bond Market Sees Sharp First-Half Decline in 2025

Bonds and Issuer Trends

Sean Henderson, co-head of Asia-Pacific debt capital markets at HSBC, said that sovereign and supranational issuers in the region delayed funding plans amid volatility but are now returning. Indonesia, for instance, issued a US$1.1 billion green bond in July, signaling renewed activity.

Interestingly, sustainability bonds outpaced green bonds in Southeast Asia during the quarter, raising US$1.2 billion compared to green bonds’ smaller share. Analysts attribute this to issuers focusing on broader socio-economic outcomes, not just environmental goals. Henderson noted that “highlighting the social angle supports a broader understanding of how issuers are engaging with sustainability outcomes.”

Loans Show More Resilience

While ESG loans in Southeast Asia also dipped, the decline was modest. Proceeds fell 7.6 per cent to US$7.7 billion compared with US$8.4 billion in the same period last year. Globally, however, ESG loans grew 15.2 per cent to US$222.4 billion, and the Asia-Pacific region excluding Japan recorded a 30.2 per cent jump.

According to Jeong Yoonmee of OCBC, the smaller drop in loan volumes reflects near-term headwinds rather than a structural shift. She emphasized that “this remains a long-term journey with potential for momentum to pick up over time as the ESG landscape in Southeast Asia matures.”

DBS’s Shilpa Gulrajani echoed this view, highlighting that demand for renewable energy, greener infrastructure, and resilient supply chains will continue to drive ESG financing in the region. Green loans, in particular, remain dominant, supported by governments’ push for energy security and technological innovation.

Also Read: What Are ESG Bonds? Benefits & Future of Green Investing

Outlook

Market participants expect ESG issuance to rebound later in 2025. With interest rate cuts improving borrowing conditions and clearer tariff impacts emerging, more deals are likely to return to the pipeline. Henderson added that lower Asian currency interest rates have already drawn strong interest from global issuers in local bond markets.

On a year-to-date basis, ESG bond proceeds in Southeast Asia were only 10 per cent lower than in the first half of 2024, suggesting that the steep Q2 decline could prove temporary.

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Source: THE BUSINESS TIMES